I study a Bayesian persuasion model that connects two stylized facts characterizing the Internet: a great diversity of news sources and the proliferation of disinformation. I show that competition between news sources with opposite biases reduces information quality when news consumers have limited attention because of the endogenous formation of echo chambers. According to the standard narrative, echo chambers arise because news consumers exhibit confirmation bias. I show that even unbiased and rational news consumers devote their limited attention to like-minded news sources in equilibrium. Confirmation bias thus arises endogenously because news sources have no incentive to provide valuable information.
Can strategic information acquisition harm the provision of a public good? We investigate this question in an incentivized online experiment with a large and heterogeneous sample of the German population. The marginal returns of the public good are uncertain: it is either socially efficient to contribute or not. In the information treatment, participants can choose between two information sources with opposing biases. One source is more likely to report low marginal returns, whereas the other is more likely to report high marginal returns. Most participants select the source biased towards low marginal returns, independent of their prior beliefs. As a result, the information treatment significantly reduces contributions and increases free-riding. When contributing is socially efficient, the information treatment reduces social welfare by up to 5.3%. Moreover, social preferences affect information acquisition: socially-oriented participants are more likely to acquire information and to select the source that is biased towards low marginal returns. We corroborate our findings by showing that participants’ behavior in our experiment is consistent with their attitudes towards actual public goods.
We study a model of information design where agents have an asymmetric perception of the state space. Whereas the sender (she) perceives all payoff-relevant states of the world, the receiver (he) does not. Persuasion occurs in two stages. The sender first designs the receiver’s optimal frame by expanding or refining his perception of payoff-relevant states. Then, given the chosen frame, the sender designs an optimal information structure. We characterize the sender’s tradeoff between keeping the agent in the dark and expanding/refining his perception of the state space. The optimal frame depends on how the receiver reacts to the discovery of new states or the refinement of his information partition. We characterize optimal persuasion under various standard frameworks to model beliefs under growing awareness: reverse Bayesianism, extended Bayesianism, and partition dependence with sub-additive new beliefs. We also discuss robust approaches to account for the possibility that the sender cannot anticipate how the receiver forms new beliefs after a frame change. Our analysis may shed light on the management of public panic events such as those after the COVID-19 pandemic outbreak.
This paper examines the issue of product compatibility in an oligopoly with three multi-product firms. Whereas most of the existing literature focuses on the extreme cases of full compatibility or full incompatibility, we look at asymmetric settings in which some firms make their products compatible with a standard technology and others do not. Our analysis reveals each firm’s individual incentive to adopt the standard, and allows to study a two-stage game in which first each firm chooses its technological regime (compatibility or incompatibility), then price competition occurs given the regime each firm has selected at stage one. When firms are ex ante symmetric, we find that for each firm, compatibility weakly dominates incompatibility. In a setting in which a firm’s products have higher quality than its rivals’ products, individual incentives to make products incompatible emerge, first for the firm with higher quality products, then also for the other firms, as the quality difference increases. This paper sheds lights on markets in which some firms adopt the standard technology but other firms use proprietary systems.
A Common Charger for Electronic Devices in the EU: Beauty or Beast? with Martin Peitz – CPI (July 4, 2022)
Should the European Union Require Tech Firms to Adopt a Common Charger? with Martin Peitz – ProMarket (June 23, 2022)